Updated: Jul 13, 2023
The concept of "debt" evokes fear, challenges, and difficulties for individuals who face it. The truth is that very few people are without debt. Debt encompasses anything owed personally or in business, regardless of the amount or type. For Muslims, debt management is crucial to comply with Shariah and Islamic rulings. Debt plays a vital role in financial and estate planning, with personal, social, spiritual, and legal implications that many fail to realize when taking on debt. Emotions often influence decision-making when it comes to debt. For instance, you may strongly desire to own a house and be willing to do so at any cost. However, this approach may not align with your faith, as there are few truly Halal mortgage providers, despite their claims. If you opt for a Halal mortgage, extra care must be taken due to the lack of clarity in the terms, which is commonly observed. Our tool is a valuable resource, helping you visualize your financial future by calculating the interest (riba) you would be paying on top of the principal amount. The interest payments can amount to approximately 50% of the principal. Consider the example of owning a property worth $1 million, where you would end up paying close to half a million in interest alone. Isn't that a daunting prospect? These figures highlight the alarming reality of the interest burden associated with debt. It underscores the importance of being cautious and well-informed before committing to financial obligations. Proper debt management becomes crucial not only for financial stability but also for adhering to religious principles and ensuring a secure future. By understanding the true cost of debt and exploring alternatives that align with your values, you can navigate the challenges of debt while preserving your financial well-being and faith.
This calculator is designed to help people plan effectively before purchasing a property to decide whether to buy a property with the mortgage or keep renting until adequate finances are built up. Look for Buy vs. Rent cost difference in the calculation summary, and if the rental expense is reasonable and affordable, then just rent the house until enough cash is available in the pocket for purchasing the home and vice-versa.
Currently, the "TO BORROW" and "PAY AFTER INCOME" amount is zero because the income of the Applicant (i.e., $75,000) and Co-Applicant income (i.e., $50,000) is adequate to cover the mortgage amount, assuming you enter other fields (i.e., Renting, House expenses, taxes, insurance, groceries, utilities, etc.) correctly reflect your finances. Try to reduce the Applicant's income to say "$70,000"; the "TO BORROW" and "PAY AFTER INCOME" will display some value, meaning your income is inadequate to cover the mortgage and expenses, and you cannot pay off a mortgage in 3 years. The amortization period is not displayed because the calculator has the default amortization period of "3 years".
To learn more, Observe the change by modifying a few values in the input field to learn about how does impact your selection vs. result. Enter all values except the last one where it says "ENTER FROM TO BORROW," you need to get into the value calculated in the first field on the top that says "TO BORROW" After entering, you will notice that the value under "TO BORROW" goes to zero, i.e., your home value equals borrowing. It is ultimately up to the user to effectively plan for borrowing and, at the same time, whether there is a possibility to borrow it all depending on the specific situation of person to person.
DISCLAIMER: We strive to offer users accurate information to the best of our knowledge. However, laws are subject to change; therefore, the user assumes full responsibility and should utilize the information on our website and this tool as a reference per our terms and conditions. If you believe any part of the calculation is incorrect or contains errors, we kindly request your feedback here.